Skepticism Greets Obama Debt-Accord Plan for Bigger Deficit Cuts

The U.S. debt-ceiling deal poised for final congressional approval today creates a special panel that could easily deadlock and contains an enforcement mechanism for future belt tightening that exempts big drivers of long-term deficits, causing skepticism among some budget experts about the plan’s effectiveness.

Based on past attempts to use budget-cutting mechanisms known as “triggers,” Congress could vote to override the automatic spending cuts in the bill intended to force a broader agreement to reduce the debt by the end of this year.

“It’s terrible,” said Alice Rivlin, former President Bill Clinton’s budget director who served on a fiscal commission President Barack Obama set up last year. “But it was much better than the alternative” of a U.S. government default.

The new law would cut $917 billion in spending over a decade and assign a special congressional committee to find another $1.5 trillion in deficit savings by late November, to be enacted by Christmas. If the committee fails to act or Congress rejects its recommendations, automatic cuts totalling $1.2 trillion in defense and domestic programs would kick in.

U.S. Credit Rating

Credit rating agencies have cautioned that the first round of cuts may not be enough to stave off a potentially devastating downgrade for the U.S. government, heightening the importance of the new committee’s work.

Representative David Dreier, a California Republican and head of the House Rules Committee, said the special panel of six Democratic and six Republican lawmakers is “unprecedented” because it has “legislative authority.”

Its plan for additional debt reduction would be sent for an up-or-down vote in both chambers of Congress, sidestepping parliamentary tactics that could stall it. Though the committee requires only a simple majority among its members for its recommendations to be forwarded, doubts surround whether that can be achieved in the current political climate.

“They’re going to have a hell of a time coming to an agreement,” said Joe Minarik, senior vice president at the nonpartisan Committee for Economic Development, a Washington- based research group, and a former chief economist in the White House budget office. “You’re going to have Democrats who’ll try to get tax increases and Republicans who will be utterly opposed to having that happen.”

Leader Appointments

Under the debt-ceiling measure that the House passed yesterday and the Senate votes on today, the Democratic and Republican leaders in both chambers will have two weeks to decide on the three appointees each can make. The committee must vote on its $1.5 trillion deficit-cutting plan by Nov. 23. Congress must then accept or reject the recommendations by December 23.

Among House Republicans, potential picks for the new panel include Ways and Means Committee Chairman David Camp of Michigan and Budget Committee Chairman Paul Ryan of Wisconsin -- both of whom have repeatedly stressed their opposition to tax increases as a part of a deficit reduction. Ryan also spearheaded a House budget plan that would privatize Medicare, which Democrats adamantly oppose.

Gang of Six

Potential candidates also include the six senators -- three Democrats and three Republicans -- who since early this year have sought to cobble together a bipartisan debt-reduction plan. Senate Majority Leader Harry Reid, a Nevada Democrat, was noncommittal today when asked by reporters whether he’d name any of his party colleagues who were part of the so-called Gang of Six, Richard Durbin of Illinois, Mark Warner of Virginia and Kent Conrad of North Dakota.

“I’m looking at all senators; I’ve had inquiries by lots of people, Reid said.”

One of the gang’s Republican members, Senator Tom Coburn of Oklahoma, said he’s not interested in serving on the new committee. “I’m committee-ed out,” he said today. “I’ve worked well over a year-and-a-half on these issues -- they just probably need some fresh blood.”

Given these divides, other lawmakers foresee a replay of the impasse that brought the government to the brink of a default in the recent dispute.

“I guarantee you we are going to be here at that point after Thanksgiving where nothing is going to happen,” said Representative Eliot Engel, a New York Democrat.

The linchpin of the agreement is the “trigger” mechanism to put into effect across-the-board spending cuts in government programs if the committee deadlocks or if Congress rejects the panel’s plan.

‘Damocles Sword’

The model is the 1985 Gramm-Rudman-Hollings Act that set enforceable deficit targets that Democrats credit with having pressured Republican President Ronald Reagan to agree to tax increases. White House Press Secretary Jay Carney has likened it to a “Damocles sword” hanging over Congress that will force an agreement through the threat of spending cuts equally unpalatable for both parties.

If the committee can’t agree on at least $1.2 trillion in savings, automatic cuts of that amount split evenly between national security and domestic programs including infrastructure and education would kick in.

The problem some see with the trigger is that it doesn’t include the prospect of revenue increases that rankle Republicans or revamping of the entitlement programs opposed by most Democrats -- policy changes most experts see as essential to curbing the government’s long-range deficits. Social Security, Medicaid and unemployment insurance would be exempt from the across-the-board reductions, and Medicare cuts would be capped and targeted at providers, not beneficiaries.

‘Swiss Cheese Trigger’

“It just creates a Swiss cheese trigger, which is very unlikely to have the desired effect” of significant deficit reduction, said Maya MacGuineas, president of the Committee for a Responsible Federal Budget in Washington.

Also, the triggers wouldn’t hit until the end of 2012, which “builds too much time into the process” by allowing opposition to mobilize to try to thwart the cuts.

As an example of the potential reaction, the deal would trigger an automatic cut of $500 billion from defense spending, reductions “so draconian it’s hard to believe they are even on the table,” Marion Blakey, president of the Aerospace Industries Association, said in a statement yesterday.

‘Unholy Alliance’

Bob Bixby, executive director of the Concord Coalition in Arlington, Virginia, said Republicans who oppose defense cuts and Democrats who want to prevent domestic spending cutbacks could form what he termed an “unholy alliance” to stop the trigger from taking effect.

Precedence is on the side of overriding such mechanisms. In the five years of the Gramm-Rudman-Hollings act, the triggers kicked in twice. In one case the reductions were reduced by Congress, and in the other they were overridden by a subsequent budget agreement.

The likely rules governing the committee’s search for deficit reduction may also make it tough for lawmakers to overhaul the tax code in a way that generates more revenue.

The Congressional Budget Office’s revenue baseline, or yardstick, assumes that the Bush-era income tax cuts will expire at the end of 2012, as scheduled. Republicans want a future revenue level equivalent to extending all the cuts, while the administration wants to raise about $1.8 trillion above that level over the next decade. Measured against the CBO’s yardstick, either approach would be viewed as a tax cut, not deficit reduction.

Rivlin said that for all its flaws, the super committee approach remains the best option for some form of long-term deficit reduction. “Everybody’s sick of committees and commissions, including me, but the ordinary political process is deeply broken and is not working,” she said.

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net;

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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